Here’s some good news for flat owners worried how much Value-added tax (VAT) will they have to pay.

Here’s some good news for flat owners worried how much Value-added tax
(VAT) will they have to pay.
*The quantum of Maharashtra VAT on flats and real estate sold in the
state between June 20, 2006 and March 31, 2010 may be much less than 5%,
depending up on the method of calculation a developer chooses to adopt*.
For example, for a flat with an agreement value of Rs 30 lakh, the VAT
could be Rs 24,500 at the lowest and Rs 1,15,800 at the highest.
Soon after the state government’s communication, there was a general
impression that purchasers will have to shell out a high 5% of the value of
their deals as VAT. While that is a possibility, the Maharashtra Department
of Sales Tax has said that there are three options available with
developers to calculate the MVAT.
A senior functionary in the Sales Tax office told TOI that under rule
58 of the Act a developer can deduct the price of land as well as expenses
on labour and further deduct the VAT he has paid on the materials before
arriving at his tax liability under MVAT. Alternatively, the developer can
choose the standard deduction method.
There is a third option based on composition at the rate of 5% of the
agreement value and deducting from it the tax already paid on purchase of
materials. This method does not contemplate deduction for land value, the
official said.
Thus for a flat with an agreement value of Rs 30 lakh with land cost of
Rs 15 lakh and labour expenses of Rs 5 lakh, the MVAT payable would be Rs
24,500 under the first option and for the same agreement value and land cost
with standard deduction of 30% for labour cost, the MVAT would be Rs
28,875. By the 5% composition method, however, the MVAT would work out to
as high as Rs 1,15,800.
Real estate developer and director of Gera Developments Rohit Gera said
a developer will have to exercise the choice according to his method of
paying for labour and materials. He said the composition method which
provides for a flat 5% gross MVAT is the least efficient one but there may
be some developers who will choose it.
Gera said the extension in time which the Supreme Court has allowed has
given time for developers to work out at greater detail their tax liability
and select the method which is least painful for their customers. “One
thing is sure, the developers will be able to recover from the customers
only what they pay to the government, and there is no possibility of a
developer charging anything extra under any pretext,” Gera said.